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Yahoo Q4 '09 Financials and PPC Share

Yahoo! announced their Q4 '09 earnings on Tuesday, making their best effort to portray a 4% year over year decline in revenue as a signal of a turnaround.  While that certainly beats the 12-13% declines Y! saw earlier in '09, there are still troubling numbers deeper in the report and in RKG's data. The big number that jumps out is a 15% Y/Y decline in search advertising revenue.  From Yahoo:
Marketing services revenues from Owned and Operated sites were $971 million for the fourth quarter of 2009, a 9 percent decrease compared to $1,063 million for the same period of 2008.  The decrease was primarily driven by a 15 percent decline in search advertising revenue and a 1 percent decline in display advertising revenue.
Results from a basket of RKG clients are in line with that figure with a spend decline of 20% across Yahoo and its partners in Q4.  By comparison, RKG's spending on Google rose 14% Y/Y. While a general improvement in the economic environment helped all three engines' Q4 numbers, Yahoo continued to bleed share to Google and Bing at a fairly steady rate according to our data: Interestingly, Yahoo's reported numbers were bolstered by a relatively impressive 6% Y/Y lift in revenue from affiliate sites.  While they don't break out specifics, it stands to reason that a big portion of that revenue is from Yahoo! Partners on search.  It's unclear if the 15% decline in search advertising revenue includes the partner results; If so, it's an even more impressive gain, but one with not so obvious costs. To Yahoo's credit, they have offered advertisers the ability to block poorly performing partner sites for some time now; however, if most advertisers are not parsing their data this finely, the expansion of Yahoo! Partners with lower and lower quality traffic will continue to drive down ROI and ultimately spend on Yahoo O&O sites where the bulk of their revenue potential is.  Advertisers and agencies taking advantage of Yahoo's partner exclusions (like RKG) benefit from this scenario through reduced competition in bid auctions and lower CPCs.  Good for our clients, bad for Yahoo. Fortunately for Yahoo, this effect is likely to diminish over time as more advertisers wise up to just how much money they are throwing away to poorly performing partner traffic.  Yahoo has also made a smart move recently by improving advertisers' ability to manage bids on their network.  In addition to the existing all-or-nothing exclusions, we can now apply a percentage bid adjustment to partner traffic.  This is a very welcome move and the benefits should flow both ways in the long run.
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